The Overnight Report: High on Tech

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This story features CORPORATE TRAVEL MANAGEMENT LIMITED, and other companies.
For more info SHARE ANALYSIS: CTD
The company is included in ASX300

By Greg Peel

Not So Bad

“I think it's likely we're going to see interest rates at their current level for years," said RBA governor Philip Lowe at a virtual conference yesterday.

Dr Lowe also remarked that he’d like to see the Aussie lower, but then blew it by suggesting the Australian economic downturn would not be as severe as overseas, or as first feared, with hours worked now forecast to fall -10% rather than the “staggering” -20% tipped by the RBA in April.

The Aussie is up 1.3% to be back over US69c.

He went on to say governments must incentivise businesses to take investment risks in new technologies and to be entrepreneurial for the economy to become more dynamic and avoid “meandering” after covid.

It’s not clear which part the market liked most yesterday – the low rates forever part or the not as bad as first feared part, or whether we might call this a win-win as far as stocks are concerned, but the ASX200 did turn an initial -61 point loss into a 30 point gain by early afternoon, before the US futures began to tip over.

What thus looked like a flat, nothing session at the close was in fact quite volatile, and very mixed among sectors.

Friday saw consumer discretionary starring on May retail sales numbers, but yesterday the sector fell -1.1%. With our international border closed for the foreseeable future, the message had been “Get out and see Australia” but now it comes with the caveat “but for God's sake don’t go anywhere near Victoria”. South Australia has decided to keep its border with Victoria closed, and Western Australian has decided to keep its border closed period.

Gladys seems determined to hang in there, but if the Mexicans start swimming across the Murray then that too might change.

Suffice to say Corporate Travel Management ((CTD)) was the worst index performer yesterday in falling -8.0% and Webjet followed with -5.0%. Qantas ((QAN)) fell -4.1%. You know all those billboards on the way to the airport? oOh!media ((OML)) fell -5.0%.

But discretionary wasn’t the worst performer. Industrials fell -2.3% after an update from Transurban ((TCL)) had that stock down -4.1% while Sydney Airport ((SYD)) fell -1.6% (see above).

It was also a bad day on the Ausdaq, with IT falling -1.7% because Altium ((ALU)) reported the re-lockdowns in China will trim its full year result, and fell -7.6%. Given WAAAX and Co are considered as one unit, all other tech high flyers fell back as well after a couple of days of good gains last week.

On the flipside, materials countered with a 1.7% gain thanks to the gold price (which is up again overnight, but then so is the Aussie), while the banks played a pillar role, up 0.6%.

Among individual winners, Austal ((ASB)) jumped 9.5% after a US$50m investment from the US government in shipbuilding and maintenance, while James Hardie ((JHX)) rose 7.3% after raising its US margin guidance.

So on Friday the index rallied in the morning and then fell to close square, and yesterday it fell from the open and then rallied to close square.

No Idea.

Only one place to hide

WHO reported on Sunday the largest single-day increase in global virus cases, more than 183,000, while South Korea yesterday declared its resurgence a “second wave.”

In the US, there are 24 states that showed an increasing trend in cases this past week, with California, Texas and Florida continuing to lead the way, each with more than 4,000 new cases on Sunday alone, according to Johns Hopkins. The global tally topped 9 million.

Yet state and local jurisdictions remain determined not to reimpose restrictions on a balance of death and overall economic hardship, and probably fearing a community backlash.

We are reminded that during the Spanish flu, the US was locked down three times.

What is Wall Street to do?

Wall Street can focus on unending Fed lending to all and sundry and another US$1trn fiscal support package being considered by Congress. But just in case, it can also hide in Big Tech.

The Nasdaq hit a new all-time high last night in rising 1.1% to mark the twentieth new ATH in 2020 and a 12% gain for the year. The same stocks drove the S&P up 0.7% and Microsoft and Apple led the Dow up 0.6%. Tech was the best performing S&P sector in rising 1.9%.

Consumer discretionary rose 1.1% which seems counterintuitive until you recognise it was all about a 1.5% gain for Amazon. In between was the prime defensive – utilities – up 1.3%, which rather sums up the No Idea trade across the Pacific.

Economic data continue to be mixed. The Chicago Fed national activity index rebounded to 2.6 in May (zero neutral) from -17.9 in April. But existing homes sales fell -9.7% in May to mark the third straight month of falls.

American Airlines went to the bond market last night to raise (another) US$3.5bn. It fell -6.8%.

Now that the Beyond Meat story has faded the new kid on the futuristic block is Nikola, which is set to produce electric and hydrogen-fuelled trucks and is seen as somewhat as the new Tesla. (The famous scientist after whom Tesla is named had the first name Nikola).

JPMorgan suggested in a note last night the company was "poised to disrupt the transportation industry," but having already run up 50% in three months, the analysts set a Neutral rating and a price target -31% below the traded price.

Nikola rose 6.2% on the day. Not only is it yet to make a profit, it’s yet to make any revenue.

Commodities

The iron ore price is threatening to slip back below US$100/t with Brazil beginning to reopen some production, but given Brazil is the new global hotspot number one, will it last?

WTI crude is now over US$40/bbl, having rallied back from -US$40/bbl.

A fall in the greenback supported gold last night but the trend here nevertheless seems to be irrespectively defensive. When the chips are down buy gold and Amazon.

Aussie dollar gold will nevertheless be dragged down by a 1.3% gain to US$0.6910.

Today

The SPI Overnight closed up 34 points or 0.6%.

The flashers are out and about across the world today, providing estimates of June manufacturing PMIs.

The ABS will provide preliminary numbers for May trade.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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